1. Chapter 16: Logistics and Supply Chain Challenges for the Future

2. Chapter 16Management of Business Logistics, 7 th Ed.2 Learning Objectives - After reading this chapter, you should be able to do the following: Understand what is meant by strategy and how it applies to logistics and supply chain management. Trace the stages in the evolution of strategic planning and its application to logistics and supply chain management. Have a working knowledge of how logistics and supply chain strategies have benefited individual business firms.

3. Chapter 16Management of Business Logistics, 7 th Ed.3 Learning Objectives Be able to explain the relevance and importance of logistics and supply chain strategies of the following types: time-based, asset productivity, technology-based, and relationship-based.

4. Chapter 16Management of Business Logistics, 7 th Ed.4 Learning Objectives Identify and explain a number of macro trends that will impact the future of logistics and supply chain management, such as: shift from vertical to virtual integration, collaboration, knowledge of core competencies, technology and connectivity, managing the people skills, and having a comprehensive supply chain perspective.

5. Chapter 16Management of Business Logistics, 7 th Ed.5 Introduction Logistics and supply chain management are changing quickly, and are characterized by: Many innovations and improvements Movement towards being considered as players in strategic, competitive advantage Prime candidates for application of tried and proven approaches to strategic planning

6. Chapter 16Management of Business Logistics, 7 th Ed.6 Overview of Strategic Planning for Logistics and Supply Chain Management Definitions: Strategy – a course of action, a scheme, or a principal idea through which an organization hopes to accomplish a specific objective or goal. Tactics – refers to the operational aspects that are necessary to support strategy.

7. Chapter 16Management of Business Logistics, 7 th Ed.7 Overview of Strategic Planning for Logistics and Supply Chain Management Examples: Cross-docking – a term that describes moving goods through a distribution center in less than a day, a tactic used by Wal- Mart among others to both lower prices while increasing customer service. Rapid inventory turns contribute to the lower costs, and the speed of the flow of inventory results in the increase in customer service.

8. Chapter 16Management of Business Logistics, 7 th Ed.8 Overview of Strategic Planning for Logistics and Supply Chain Management Examples: Internet capabilities – employed by Best Buy to let customers order over the Internet and pickup items at a retail store location. Best Buy is combining its technological competencies with its logistics and supply chain capabilities of customer service and market positioning.

9. Chapter 16Management of Business Logistics, 7 th Ed.9 Figure 16-1 Best Buy: Integrating Retail, Catalog, and Online Sales

10. Chapter 16Management of Business Logistics, 7 th Ed.10 Overview of Strategic Planning for Logistics and Supply Chain Management Examples: Inventory availability – Benneton is another retailer that has used good logistics to accomplish increased market share and higher profit levels By developing a QR system utilizing bar coding of cartons and linking production to retail locations, Benneton achieves low in- store inventory, right stock availability, and high levels of customer service.

11. Chapter 16Management of Business Logistics, 7 th Ed.11 Overview of Strategic Planning for Logistics and Supply Chain Management Strategy Classification Porter’s model of basic strategies, namely, cost, differentiation, and focus is the most popular scheme. Strategies based on low cost essentially stress offering a product or service in a market at a price or cost lower than that of competitors. Automobiles and electronic products are two examples of this strategy, as are the general operations of retail firms such as Wal-Mart, Target, and McDonalds.

12. Chapter 16Management of Business Logistics, 7 th Ed.12 Figure 16-2 Strategies for Creating Value

13. Chapter 16Management of Business Logistics, 7 th Ed.13 Overview of Strategic Planning for Logistics and Supply Chain Management Strategy Classification Strategies based on differentiation attempt to make a product or service look unique, such that consumers are willing to par a premium price. Perceptions based on better fit, higher quality, long product life, better service, and other similar attributes are typical of strategies based on differentiation.

14. Chapter 16Management of Business Logistics, 7 th Ed.14 Overview of Strategic Planning for Logistics and Supply Chain Management Strategy Classification Strategies based on focus attempt to make a product or service fit a niche or small market segment where either cost or differentiation is then employed. Offering delivery, 24/7 hours, multiple offerings of similar products into differentiated segments and other similar strategies are typical of focus- based models of classification.

15. Chapter 16Management of Business Logistics, 7 th Ed.15 Overview of Strategic Planning for Logistics and Supply Chain Management Strategy Classification Porter’s value chain suggests that a company can be disaggregated into five primary activities and four support activities. Examine Figure 16-3.

16. Chapter 16Management of Business Logistics, 7 th Ed.16 Figure 16-3 The Generic Value Chain

17. Chapter 16Management of Business Logistics, 7 th Ed.17 Time-Based Strategies Reducing Cycle Time Logistics activities that shorten the length of the order/replenishment cycle have been the focus of much recent attention. Reductions in cycle time are based on three factors: processes, information, and decision making. If logistics is seen as a series of processes, performing those processes faster will reduce cycle time.

18. Chapter 16Management of Business Logistics, 7 th Ed.18 Time-Based Strategies Utilization of faster, more efficient forms of order transmission---EDI or the Internet--- can significantly reduce the time needed to complete the transaction. Finally, empowering individuals to make decisions can be one of the most important ways to speed cycle time. Pre-approvals and other delegated decision making models can lead to making mistakes, but the experience of Proctor & Gamble, among others, is that the risk is justified in terms of time saved and improvement in customer responsiveness.

19. Chapter 16Management of Business Logistics, 7 th Ed.19 Time-Based Strategies Time-Reduction Logistics Initiatives Push to pull Cross-docking, JIT, VMI, and CRP are all contemporary approaches that help logistics systems move from push to pull. Each strategy reduces the order cycle by shortening the total time from vendor to delivery to customers.

20. Chapter 16Management of Business Logistics, 7 th Ed.20 Time-Based Strategies Time-Reduction Logistics Initiatives Anticipate customers’ needs Improved ability to anticipate through collaborative planning, forecasting, and replenishment (CPFR) enables the logistics and supply chain processes to make a more valuable contribution to corporate objectives. The switch from push to pull is a more demand-responsive system, but requires changes that may be difficult to achieve depending on the corporate culture in place.

21. Chapter 16Management of Business Logistics, 7 th Ed.21 Time-Based Strategies Time-Reduction Logistics Initiatives Manufacturing impacts Pull approach requires a fast manufacturing system. Risk of low or no inventory depends on fast and frequent replenishment. Responding to demand Consistent with time-compression strategies Produce to order now being tried by furniture and farm implement manufacturers, both traditional “produce for stock” companies.

22. Chapter 16Management of Business Logistics, 7 th Ed.22 Time-Based Strategies Time-Reduction Logistics Initiatives Postponement involves not completely finishing a product until an order arrives. Food processors that can “brights” and do not label until an order is received Auto manufacturers that pre-wire electronic harnesses to take any option, not knowing what a particular car order will specify.

23. Chapter 16Management of Business Logistics, 7 th Ed.23 Asset Productivity Strategies Inventory Reduction Much evidence that companies have been successful in reducing inventories. Time reduction strategies have contributed. Facility Utilization Strategy to keep the goods moving throughout the logistics and supply chain system has contributed to effective use of logistics facilities thus squeezing more productivity from these assets.

24. Chapter 16Management of Business Logistics, 7 th Ed.24 Asset Productivity Strategies Equipment Utilization Strategies Some reductions have occurred here as a result of contraction of this equipment and smarter, more sophisticated equipment dispatching software. Doing more with less is a result of leaner enterprises.

25. Chapter 16Management of Business Logistics, 7 th Ed.25 Asset Productivity Strategies Third-Party/Contract Logistics Services Use of 3PLs has resulted in dramatic positive impact on asset productivity. DuPont, Nabisco, Proctor & Gamble, General Electric and General Motors and others are users of 3PLs, focusing on managing logistics services rather than on the assets themselves. Examine Figure 16-4 on 4PLs potential impact.

26. Chapter 16Management of Business Logistics, 7 th Ed.26 Figure 16-4 Fourth-Party™ Logistics

27. Chapter 16Management of Business Logistics, 7 th Ed.27 Technology-Based Strategies Disruptive technologies are those will help make firms more competitive, but will change the basis of competition. Examine Table 16-1 Implications are that logistics and supply chain areas of the future will differ significantly from those of today. E-commerce e-procurement and electronic marketplaces will continue to grow in importance.

28. Chapter 16Management of Business Logistics, 7 th Ed.28 Table 16-1 Disruptive Information Technologies

29. Chapter 16Management of Business Logistics, 7 th Ed.29 Figure 16-5 Shifts in Technology

30. Chapter 16Management of Business Logistics, 7 th Ed.30 Figure 16-6 Strategic Sourcing and Procurement

31. Chapter 16Management of Business Logistics, 7 th Ed.31 Relationship-Based Strategies Collaboration Parties involved dynamically share and interchange information. Group benefits more than individual benefits. All parties modify their business practices. All parties conduct business in new and visibly different ways. All parties provide a mechanism and process for collaboration to occur.

32. Chapter 16Management of Business Logistics, 7 th Ed.32 Figure 16-7 Types of Collaboration

33. Chapter 16Management of Business Logistics, 7 th Ed.33 Relationship-Based Strategies Value Nets Taking the place of the old supply chain, the value net starts with the customer and is built around three powerful value propositions: High levels of customization Super service Convenient solutions

34. Chapter 16Management of Business Logistics, 7 th Ed.34 Relationship-Based Strategies Value Nets Combines strategic thinking with the latest advances in digital supply chain management. Every customer is unique. Customers choose products or services they value most. Capture real choices in real time and transmit them digitally to other net participants. Examine Figure 16-8.

35. Chapter 16Management of Business Logistics, 7 th Ed.35 Figure 16-8 Gateway’s Value Net

36. Chapter 16Management of Business Logistics, 7 th Ed.36 Synthesis and Future Directions Shift from Vertical to Virtual Integration Collaboration Knowledge of Core Competencies Expertise Strategic fit Ability to trust Technology and Connectivity Managing-the-People Skills Comprehensive Supply Chain Perspective